Correlation Between ATT and Telefnica

Can any of the company-specific risk be diversified away by investing in both ATT and Telefnica at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining ATT and Telefnica into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ATT Inc and Telefnica SA, you can compare the effects of market volatilities on ATT and Telefnica and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in ATT with a short position of Telefnica. Check out your portfolio center. Please also check ongoing floating volatility patterns of ATT and Telefnica.

Diversification Opportunities for ATT and Telefnica

0.86

Correlation Coefficient

ATT  Telefnica

Very poor diversification

The 3 months correlation between ATT and Telefnica is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc and Telefnica SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telefnica SA and ATT is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on ATT Inc are associated (or correlated) with Telefnica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telefnica SA has no effect on the direction of ATT i.e., ATT and Telefnica go up and down completely randomly.

Pair Corralation between ATT and Telefnica

Given the investment horizon of 90 days ATT Inc is expected to generate 2.09 times more return on investment than Telefnica. However, ATT is 2.09 times more volatile than Telefnica SA. It trades about 0.16 of its potential returns per unit of risk. Telefnica SA is currently generating about 0.13 per unit of risk. If you would invest  40,984  in ATT Inc on September 15, 2024 and sell it today you would earn a total of  6,316  from holding ATT Inc or generate 15.41% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

ATT Inc  vs.  Telefnica SA

ATT Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak primary indicators, ATT showed solid returns over the last few months and may actually be approaching a breakup point.

Telefnica SA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Telefnica SA are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Telefnica is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with ATT and Telefnica

The main advantage of trading using opposite ATT and Telefnica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ATT position performs unexpectedly, Telefnica can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Telefnica will offset losses from the drop in Telefnica's long position.

The idea behind ATT Inc and Telefnica SA pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.